Trade and funding knowledge within the final two years dispel the deglobalization and decoupling myths as U.S.-China competitors ignites reglobalization

Recently, a trend toward deglobalization has been taken as a given, prompted by the rise of protectionism, nativism, and a series of highly costly supply chain and market access disruptions. 

However, the trade and investment data of the last two years and the many plans of major multinational corporations (MNCs) challenge the concepts of “deglobalization” and “decoupling.”

The grand shift from the deglobalization paradigm

Deglobalization has been a major framework for analyzing global business trends for well over a decade, accelerating and expanding in the wake of the 2008 Global Financial Crisis and then again during the G2 trade war and COVID-19 crisis.  Reaching back to Joseph Stiglitz’s 2002 best-seller Globalization and Its Discontents, a stream of subsequent analysts, including Mohamed A. El-Erian, Mathew J. Burrows and Robert A. Manning, and many others described changing domestic politics, trade economics, risk mitigation concerns, and the broadening scope of national security to include issues such as technology and data.  Stiglitz updated his own work to capture the domestic political trends in his 2018 article, Globalization and Its Discontents Revisited: Anti-Globalization in the Era of Trump.

Arguments for deglobalization challenged the stability of the systems with which the global economy had been built and key international institutions formed and embraced. The World Economic Forum, Peterson Institute for International Economics, Foreign Affairs, and the Cato Institute were among major think tanks and publishers contributing. In late 2018, the Bank of International Settlements published a collection of some two dozen articles, Globalization and deglobalization.  As the COVID-19 pandemic spread, articles appeared with titles like Globalization in Retreat: Tracking the Long History of Deglobalization. As recently as mid-2023, The Library of Congress published a resource guide, Trends in Globalization—a Resource Guide, prefaced with the observations, “However, since the Great Recession of 2008-2010 a downward trend in economic integration has been observed.”

But by mid 2023 questions about a deglobalization trend arose.  In May The Brookings Institute published a study titled What is the Evidence for Deglobalization. In July, the European Central Bank published an article similarly titled Deglobalization: risk or reality? and the World Bank hosted a discussion blog around a document entitled, Is globalization in retreat? Here is what a new study shows.  Fortune reported that  Niall Ferguson declared deglobalization to be a “mirage” at the World Economic Forum.

Is it all about China?

This is not to deny that reshoring, near-shoring, and friend-shoring are not significant trends. Any discussion on deglobalization naturally focuses on China because numerous large MNCs had developed an unprecedented level of concentrated reliance on China by the eve of new geopolitical tensions and the pandemic. The narrative from China is eroding C-suite confidence: China’s real estate crisis, shadow banking crisis, youth unemployment issues, a demographic shift, a wavering stance on the prevailing growth agenda are eroding C-suite confidence. Adding scenario focuses on potential military events in the East and South China Seas, U.S. and EU executives talk about “de-risking” China.

However, this narrative misses key points. Even for goods manufacturing, de-risking does not mean deglobalizing. Surveys and investment plans make clear that few MNCs are leaving, or even descaling their China engagement.  China continues to be one of (if not the most) cost-effective places to manufacture. Its supply chains, manufacturing capabilities, trained labor force, and infrastructure make it difficult for other geographies to compete. Despite the pandemic interruptions, China has reliably shipped since its opening up and has remained extremely competitive, even as trade and other geo-political tensions have ebbed and flowed. China is certainly not looking to deglobalize but rather climb up the value curve from low value-added goods (running shoes, apparel, barges, etc.) to EV automobiles, LNG carriers, semiconductors, and medical devices.

Even as foreign investors seek to mitigate the risk of overconcentration in China, China continues to stress exports as a pillar of future growth and both promote and support Chinese enterprises to “go global”–what is compacted in the China-to-Global (C2G) formula.

Based on numerous projects for multinationals with extensive and often complex China engagements, we can report that de-risking strategies have not focused on deglobalizing but on creating resiliency, typically expressed in Business Continuity Plans (BPC) that involve new geographies and redundant capability but may or may not include reshoring. The issues of brown-outs, floods, droughts, rougher seas, heat waves, etc. could describe both Shenzhen and Houston in the past year. The impacts of global warming, for example, are not localized to China. As companies create resiliency in their operations, they will initially cause disruption–locally and to their suppliers. It will also, at least initially, increase their cost base and unit costs (with up to 20% increases being reported in some industries). The cost impact tends to stabilize (at 0 to 3% higher than pre-relocation) and settle once the new operations mature (typically 3 to 5 years). Interestingly, companies are not relocating their entire manufacturing base, but a proportion to enhance resiliency. These changes are painful, but not markers of deglobalization or decoupling.

It’s not decoupling or deglobalization, it’s reglobalization

If we look at the data, the recent headlines provide excellent clues for what is really going on, and it is not a massive reshoring of manufacturing. Recent headlines include Vietnam as the sixth largest source of U.S. imports with trade growing 360% in 10 years and Mexico overtaking China as the top U.S. trading partner. China is not detached from these developments. 

Look a little further, and the roles of China are obvious. China is promoting the multinational RCEP pact. Vietnam is essentially completely integrated into China’s supply chains; Mexico is increasingly becoming an assembly destination for Chinese companies leveraging the United States–Mexico–Canada Agreement. Chinese enterprises are following a familiar path to diversify their operations, much like the Western MNCs did when they initially internationalized.

When we look at FDI, there have been major changes. While FDI remains below 2022 in 2023, some of this is explained by the residual of the pandemic. It takes time to get large deals completed whether an acquisition or a greenfield site–but we predict deals will increase in 2024 and 2025. After being a major recipient for decades, China has become an outflow country. Put simply, China’s response to the economic risks and abrasive geopolitics it faces is to globalize.

From the pre-1990s through the present day, the drivers, dynamics, geographies, as well as the defining and disruptive geopolitical events for what has come to be known as “multinational corporations” have undergone a series of major shifts. There is no foreseeable future for MNCs that is not significantly, if not increasingly, multinational.  

Rather than frame strategic planning for growth, resiliency, and business continuity as deglobalization, it is worth studying the shifting patterns over the decades for insights into the next stage, as recovery continues from the fracturing of global business activities during the pandemic, high-impact geopolitical events reshape major regions of the world, and technology fuels and accelerates the pace of essential global business decisions.

From reviewing the data, discussions with Fortune 500 CEOs and other senior executives, and our experience advising companies on geopolitical responses and investments, we began to observe a new trend: the emergence of a truly multi-polar world with China, India, the U.S., Europe, Latin America, the Middle East, and South East Asia all becoming increasingly independent, non-aligned, agile, and sophisticated in pursuing their self-interests. For MNCs to adjust their operations successfully requires the clearest possible view of the emerging dynamics and alignments.

Reglobalization will be a driving factor for the next two decades as the global system seeks a new equilibrium. In this sea of pessimism, we are optimists who see long-term benefits from reglobalization, especially for women and children in some of the more economically disadvantaged countries. In the longer term, we also see benefits for Western democracies, China, and other major trading countries once the initial shock and disruption passes.

Kenneth Dewoskin is Professor Emeritus at University of Michigan. Alan MacCharles is Partner at Deloitte China. This article is part of a three-part series that examines the dynamics reshaping global trade today.

More must-read commentary published by Fortune:

The opinions expressed in commentary pieces are solely the views of their authors and do not necessarily reflect the opinions and beliefs of Fortune.